The latest quarterly publication of the World Fab Forecast (November 17, 2008) reveals that spending on fabs equipping is expected to be about $27 billion (B) in 2008, a change of -29% year-over-year (YoY). The data predict 2009 to drop down to $20B (see Figure 1), or a change of -25%, which will be the lowest number since 2003. This may drop even further as the economic outlook continues to deteriorate.

For 2008, Japan is the region with most money spent, $6.0B, on fabs equipping. This number is expected to drop by over 34% to $4.0B in 2009. South Korea is second in 2008 spending, and will drop by 4% to $4.8B in 2009. The largest spenders in Japan in 2008 are the Flash JVs between Toshiba and Sandisk, Elpida, Toshiba, Fujitsu, Spansion, Sony and Renesas. Flash Alliance alone is the second largest spender for fabs equipping worldwide, second only to Samsung.

Although all other regions show negative rates in the double digits in 2009 for money spent on fabs equipping, Europe and Mideast show a positive growth. The absolute dollar amount is much less, about $2.5B compared to other regions such as Korea, Japan and the Americas (with about $4.8B, $4.0B and over $3.0B respectively). But the contrast is still remarkable. Europe and Mideast has had steady spending in the range of $2.0B to $2.6B since 2007. The European semiconductor industry does not focus on memory, so non-memory makers— such as Intel with fab 28 (Kiryat Gat, Israel) and AMD (Dresden, Germany) who received recently a financial injection from investors in Abu Dhabi— are responsible for this positive growth rate,.

Taiwan makes the largest cutbacks in money spent on fabs equipping: from about $9.0B in 2007 to $4.5B in 2008 and another reduction of 50% in 2009 to reach about $2.0 to 2.5B in equipment spending. Equipment spending in almost all other regions is expected to drop by 20 to 30% in 2009.

But not all regions will have a large drop in spending— Korea drops by only single digits in 2009. While Hynix continues to respond to the crisis by making cuts, Samsung maintains a strong position. Samsung stands out in the industry, with about $7.6 billion in cash reserves at hand. Korea could have the smallest decline of all regions in 2009 if Samsung and Hynix maintain their current ramp plans. This is a big question though, and we will have to wait until the New Year for more clarity regarding CAPEX for these two companies.

Money Spent on Fab Construction Projects

In 2008, out of a total of 10 major construction projects, five are for new fabs and three are for 300mm fabs. In 2009, out of a total of 16 known planned construction projects, only six are new fab constructions with higher probability whereas only five are for 300mm fabs.

Spending on fab construction projects in 2008 is expected to decline by 41% YoY as more projects are pushed out or put on hold (see Figure 2). Construction spending in 2009 is expected to decline about 25%, to reach its lowest level in six years.

The Americas and Japan stand out with positive growth rates in construction spending for 2009. Japan is expected to spend twice as much as the Americas, mainly driven by Toshiba, the Flash/Alliance JV, and Panasonic. Worldwide, Toshiba and the Toshiba/Sandisk Alliance represent the largest spenders on fab construction projects in 2009. In the Americas, AMD has announced the construction of their $4.0B fab in upstate New York, which is getting an additional $1.2B incentive from the state. This will be the only new high volume fab project beginning construction in the Americas in the past three years. The last new high volume fab in the Americas was Samsung’s 300mm fab in Austin, Texas, which began construction in 2006.

Capacity Trends

The World Fab Forecast tracks and forecasts capacities per fab, in great detail. In 2008, we expect overall capacity to grow by 5%, and in 2009 grow by about 4 to 5%.
The growth rates for 2008 and 2009 are the lowest since 2002. The growth rate for 300mm fabs in 2008 is the lowest in history, with 2009 even further declining.
In response to the economic crisis, oversupply, and falling average selling prices (ASP), most memory companies are closing their 200mm fabs. However, some companies maintain smaller but still positive growth rates of their 300mm fabs. For 2009, foundries are expected to maintain the strongest growth rate of about 8%, followed by MPU and then Memory.

Utilization Rates for Foundries

Utilization rates in 4Q08 for foundries are expected to reach the lowest levels in years. For example, Chartered’s utilization rate will drop to 63%, the level they saw in 2005. UMC’s utilization rate may drop as low as 55%, the lowest since 2001. We expect utilization rates to remain low through first half of 2009. As of mid-November 2008, most foundries maintain their planned capex for 2008. Only UMC has announced, at the end of October 2008, cuts in their 2008 capex (from $600M to $450M). Chartered has not announced any cuts of their 2008 capex plan (currently $630M). TSMC has yet not announced any capex cut, although they have announced hiring freezes. All foundries are expected to reduce their capex for 2009.

How the Outlook Changes

At the beginning of 2008 and even into mid 2008, the outlook for 2009 looked positive, but this has all changed (see Figure 3) very quickly.

Since the burst of the “dot.com” bubble, the semiconductor industry has become more dependent on consumer products, and therefore on the consumer. The whole industry, and especially the memory segment, has experienced falling ASP since 2007, mainly due to oversupply. The outlook was still positive because of increasing demand forecasts. Consumer confidence was still looking up.

The collapse of the credit and mortgage bubble in September 2008 changed all that. People who are losing their homes are not likely to spend on the latest gadgets, so prospects for consumer spending have dropped, and with it, the forecast for increasing demand of electronics and semiconductor devices.

What the Future Holds for Us

More and more semiconductor companies are posting losses and are forced to make cuts.

Layoffs cause more jobless consumers, and therefore more people cutting back on spending. This creates a domino effect, which is already affecting the end of the electronics supply chain, the retail stores. The effect will make 2009 even worse than 2008 for the semiconductor industry. Consumer confidence is now so low that it is below the recession point, according to the University of Michigan survey index value of October 2008. And the events of the past several months show that no country is immune to the now worldwide financial crisis.

Companies without large cash reserves are struggling and vulnerable. We can expect more mergers, such as Micron’s purchase of Qimonda’s share in Inotera mid-October 2008; Panasonic’s efforts to acquire Sanyo in November 2008; and other rumors such as Toshiba buying Sandisk and Micron acquiring Qimonda. Mergers will create redundancy, which can lead to more lay offs.

Some Light at the End of the Tunnel

In 2008, four 300mm fabs are beginning operations and only three are expected to begin operations in 2009.

Samsung has $7.6 billion cash reserves at hand. Intel's cash position still looks good. And now one company suddenly stands out: AMD, who made an unexpected move involving an outside investor. AMD’s fab plans received a huge financial boost, which spurs investment in the regions where they have fabs (such as Dresden) and stimulates regions where they plan to build new fabs (such as Luther Forest in upstate New York).

In times of struggling markets and economic recession, new ideas are born and new opportunities are created. The oil crisis caused an increasing interest in renewable energy and energy conservation, such as the solar industry. The population continues to grow, and items are being replaced or run out, which means that there is a natural demand. Severe cuts in spending will create an economic vacuum which will need to be filled. Once we reach the bottom, we will see growth again. The semiconductor industry experiences severe slowdowns about every 5 to 8 years. At the moment all data indicate that we see growth again in 2010……until we cycle into the next slowdown.

SEMI World Fab Forecast report provides high-level summaries and graphs; in-depth analyses of capital expenditure, capacity, technology and products, down to the detail of each fab; and forecasts for the next 18 months. These tools are invaluable for understanding how 2009 will look, and learning more about capex for construction projects, fab equipping, technology level, and products.